MER SETTLEMENT--COULD BE THE FIRST OF MANY!
<<<Merrill Lynch Settles With Ex-Client
NEW YORK, Jul 20, 2001 (AP Online via COMTEX) -- Merrill Lynch & Co. agreed to
pay a former client $400,000 to settle allegations that he was misled by overly
bullish research by Internet stock analyst Henry Blodget as well as information
provided by his broker at the Wall Street powerhouse.
In an arbitration case filed in March with the New York Stock Exchange, Debasis
Kanjilal claimed that he lost about $518,000 in the Internet stock Infospace
Inc. due to the fact that Blodget had kept a "buy" recommendation on the stock
as Merrill Lynch as the firm brokered a deal to get another Web company bought
by Infospace.
Kanjilal, 46, a pediatrician and father of two who had been trying to build his
children's education fund, also claimed that he lost about $311,000 in JDS
Uniphase Inc. due to a long-term inflated rating, according to the case filing.
A spokesman for Merrill Lynch, which is the nation's largest brokerage firm,
said Friday that it had settled the arbitration case to "avoid the further
distraction and expense of protracted litigation."
Joe Cohen added that "all claims with respect Henry Blodget and Henry Blodget
himself were dismissed from this case."
The case comes as brokerage firms face growing criticism that Wall Street
analysts aren't independent enough from the companies they tout. They have been
accused of being cheerleaders for companies the analysts' investment firms own
stock in or do business for, giving investors biased advice.
The Securities and Exchange Commission warned investors last month to take the
stock recommendations of financial analysts with a grain of salt. In Congress,
lawmakers are putting together a group of experts to review the new Wall Street
guidelines.
In addition, the Securities Industry Association, Wall Street's biggest trade
group, recently unveiled new voluntary guidelines for analysts, requiring
analysts to clearly disclose their holdings in companies they cover and prohibit
them from trading against their own recommendations. The guidelines also say
analysts should not have their pay directly linked to the investment banking
transactions handled by their firms for companies they cover.
The ramifications of the arbitration case, the settlement of which was first
reported by The Wall Street Journal, are unclear. It is costly to file such
cases, so it may only be worthwhile for those investors with big losses. But
Merrill Lynch's willingness to settle does raise the idea that investors do have
some recourse.
Jacob Zamansky, an attorney with Zamansky & Associates in New York, represented
Kanjilal and said he is looking into similar cases against other brokerages.
"The regulators need to step in with clear and firm new disclosure rules for
analysts," Zamansky said.
Under the arbitration case, Kanjilal said he bought 4,600 shares of Infospace
stock at the split-adjusted price of $122 to $133 a share in March 2000. The
claim states that as tech stocks began to weakened, he was concerned about his
positions, and spoke daily to his broker, Michael Healy, about the situation.
Healy, according to the claim, told him to "sit tight" and not sell.
Infospace's shares, however, began to fall. In mid-May 2000, they were trading
at around $60 a share and then slipped to $50 a share. Kanjilal noticed that the
company's CEO was selling large positions of the stock. When asked about the
situation, the broker said that there was nothing wrong with the company and
reminded Kanjilal that Blodget had a "buy" recommendation on the stock and a
$100 price target.
By December, the stock had plummeted. Kanjilal heard on the news that Blodget
had downgraded Infospace. Kanjilal called his broker and sold the stock for $11
a share, losing about $518,000.
According to the claim, Kanjilal later learned that Merrill Lynch had been
retained as a financial adviser for another Internet company, Go2Net Inc., which
Infospace purchased for about $4 billion in July 2000. The case claims that the
deal would have been jeopardized if Infospace shares had come under selling
pressure
A similar situation happened with his investment in JDS Uniphase. In early 2000,
he bought 6,800 shares of the company at a split-adjusted price of between
$64.50 and $89.44. In March of that year, he had heard reports that the company
was overvalued and put in a claim to sell at a split-adjusted price of
$120-$130. His broker convinced him otherwise.
At numerous other times during the year, Kanjilal discussed the possibility of
selling his shares but was dissuaded. Finally, in January of this year, Kanjilal
sold the shares for $45 each, for a total loss of $311,619.
The $400,000 that Kanjilal agreed to in the settlement was far below the amount
he had originally sought from New York-based Merrill Lynch. According to the
claim, he had asked for $800,000 to recover his investment losses and $10
million in punitive damages to "punish and deter respondents and other firms
from engaging in similar conduct in the future."
By RACHEL BECK
AP Business Writer>>>
Namaste!
Jim |
